FPA Capital FundThird Quarter 2016 Commentary

You should consider the Fund's investment objectives, risks, and charges and expenses carefully before

you invest. The Prospectus details the Fund's objective and policies and other matters of interest to the

prospective investor. Please read this Prospectus carefully before investing. The Prospectus may be

obtained by visiting the website at www.fpafunds.com, by calling toll-free, 1-800-982-4372, or by contacting

the Fund in writing.

Average Annual Total Returns

As of September 30, 2016

QTR YTD 1 Year 3 Years 5 Years 10 Years 15 Years Since 8/1/84*

FPA Capital Fund, Inc. 10.20 % 12.28 % 8.49 % -1.14 % 7.01 % 4.96 % 9.18 % 13.39 %

Russell 2500 6.56 % 10.80 % 14.44 % 7.77 % 16.30 % 7.95 % 10.07 % 11.65 %

Periods greater than one year are annualized. Performance is calculated on a total return basis which includes

reinvestment of all distributions.

* Inception of FPA management was July 11, 1984. A benchmark comparison is not available based on the Fund’s

inception date therefore August 1, 1984 is presented.

Past performance is no guarantee of future results and current performance may be higher or lower than the

performance shown. This data represents past performance and investors should understand that investment

returns and principal values fluctuate, so that when you redeem your investment it may be worth more or less

than its original cost. The Fund’s expense ratio as of its most recent prospectus is 0.77%. A redemption fee of

2% will be imposed on redemptions within 90 days. Current month-end performance data may be obtained at

www.fpafunds.com or by calling toll-free, 1-800-982-4372.

Dennis Bryan and Arik Ahitov have been co-portfolio managers since November 2007 and February 2014,

respectively, and manage the Fund in a manner that is substantially similar to the prior portfolio manager, Robert

Rodriguez. Mr. Rodriguez ceased serving as the Fund’s portfolio manager effective December 2010.

Please see important disclosures at the end of the commentary.

FPA Capital FundThird Quarter 2016 Commentary

Dear fellow shareholders,

For the third quarter of 2016, the Fund appreciated by 10.20% and is now up 12.28% for the year. We are pleased with these results. We note that these strong returns were achieved while carrying, on average, 27.6% cash for the quarter and 26.0% for the year. In addition to this sound showing, we are excited prospectively. Most of our companies reported solid earnings and many pointed to better days ahead. Despite a frothy market (the Russell 2500 is only 2.6% off its five-year and all-time high), our portfolio companies are on average 36.0% off their five-year highs (and off even further from their all-time highs.

Portfolio commentary

Contributors1 Performance

Contribution Detractors

1 Performance Contribution

Arris Group 1.80% Houghton Mifflin Harcourt -0.38%

Interdigital 1.68% Rowan Companies -0.37%

Western Digital 1.58% Apollo Education -0.32%

Dana 1.44% Noble Energy -0.01%

Our backlog of analyzed (but unattractively priced) securities continues to grow. This is akin to having acquired the seeds but waiting until the right season to plant them. Our investment thesis on oil is starting to play out now that we have seen production in the U.S. continue to fall. This is akin to green shoots from seeds we planted a while ago beginning to blossom. Other ‘green shoots’ include Western Digital Corporation (Nasdaq: WDC) continuing to find ways to realize synergies and lowering borrowing costs, and Arris International plc (Nasdaq: ARRS) getting closer to a new capex cycle after a lull in spending by some of its largest customers amid industry consolidation. We continue to increase the sizing of our positions when the market disagrees with our long-term view, and to do the opposite when the market ceases to provide us with an adequate margin of safety.

2

As value managers, we seek to increase the size of our positions when the market disagrees with our long-term view, and do the opposite when the market ceases to provide us with an adequate margin of safety. We don’t always get it right, but InterDigital, Inc. (Nasdaq: IDCC) epitomizes such behavior. When the market failed to recognize IDCC’s normalized earnings power, we reviewed our thesis, worked through our upside/downside case, and then took action by substantially increasing our position. Finally, this year, the seeds blossomed and we have substantially reduced our position.

1 Reflects the top contributors and top detractors to the Fund’s performance based on contribution to return for the

quarter. Contribution is presented gross of investment management fees, transactions costs, and Fund operating expenses, which if included, would reduce the returns presented.

2 Margin of safety - Buying with a “margin of safety” is when a security is purchased at a discount to the portfolio

manager’s estimate of its intrinsic value. Buying a security with a margin of safety is designed to protect against permanent capital loss in the case of an unexpected event or analytical mistake. A purchase made with a margin of safety does not guarantee the security will not decline in price.

1

The performance shown reflects the performance of a single portfolio holding and does not reflect the performance of the Fund. Portfolio composition will change due to ongoing management of the Fund. References to individual securities are for informational purposes only and should not be construed as recommendations of the Fund’s portfolio managers. It should not be assumed that future investments will be profitable or will equal the performance of the security example shown. Past performance is no guarantee of future results. Please refer to cover page this commentary for important disclosures.

Activity

We exited one name during the quarter. We sold out of SM Energy Company bonds – one of our

two high-yield bond investments. You might recall that we bought our entire position in mid-

February 2016 at around 48.50 cents on the dollar, when oil prices were hitting multi-year lows.

We sold out of the position at above par and also collected one semi-annual coupon.

We initiated one new position. We are still in the process of accumulating this equity so we will

not disclose the name of the company yet. It is a spin-off of one of our former investments. We

monitored the parent company since our exit and followed its offspring after the spin for over a

year.

We continued to be active in our existing positions by adding to those that showed higher upside

to downside ratios and trimming those that increased in price without a commensurate

improvement in outlook.

Technology investments

Our best performing investments came from the technology sector this quarter. Arris

International plc, InterDigital, Inc., and Western Digital Corporation have performed superbly (up

35.16%, 42.60%, and 24.78%, respectively in the quarter). We discussed all these names in our

first quarter letter3 so we will not spend additional time on our investment thesis on these

companies in this letter.

3 http://fpafunds.com/docs/hc_capital/fcap-q1-letter-2016_final.pdf?sfvrsn=4

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

1/3/2011 1/3/2012 1/3/2013 1/3/2014 1/3/2015 1/3/2016

Position

Price

InterDigital, Inc.

Source: FPA

9/30/2016

2

Our two other large technology investments, Arrow Electronics, Inc. (NYSE: ARW) and Avnet,

Inc. (NYSE: AVT) were also up, but not as significantly (by 3.34% and 1.78%, respectively).

Arrow and Avnet act as the distribution arm for component and computer equipment

manufacturers. Essentially, Arrow and Avnet consolidate the sales force, provide inventory

management, and offer tech support for their vendors, allowing them to reach a broader customer

base than they otherwise could. Arrow and Avnet’s customers benefit because a single distributor

can provide rapid access to and expertise around multiple products and short-term financing.

There is a lot to like about these businesses. They have a diversified customer base, supplier

base, and geographic revenue mix. To-date they have each delivered what in our view are

reasonable returns on capital. And they have the potential to generate strong free cash flow

during a downturn as inventories are paired back and accounts receivables are collected. In

addition, we think these are relatively difficult businesses to disrupt because the distributors are

not reliant on any single technology. Both firms also benefit from their scale as increasing size

attracts both more customers and more vendors creating a network effect.

Avnet recently announced several big changes. First, the company replaced its CEO after several

quarters of underperformance in its Technology Solutions (TS) business and a misstep in

business management software implementation. Second, Avnet purchased Premier Farnell, a

UK-based company focused on early design-stage customers, for about $1 billion. Finally, the

company sold off its underperforming TS business for $2.6 billion. In aggregate, we have

confidence these changes have improved the overall business quality and increased Avnet’s

optionality via a de-levered balance sheet.

Arrow continues to execute well and is making changes to improve its business. For example,

Arrow’s Enterprise Computing Solutions business has become more software driven, and this

could lead to margin expansion. In addition, as the components business begins to take on more

design work and offer more service-based solutions, we believe that margins in this business

could also expand.

Energy investments

Our investments in the energy sector continued to be volatile. They have been strong contributors

to our year-to-date performance, but with the exception of two, they have either detracted from or

were small contributors to our performance in the third quarter. For instance, Rowan Companies

plc (RDC) was one of our detractors this quarter: the stock was down 14.16% for the quarter and

detracted 37 bps from the performance. Another energy name that was down in the third quarter

was Noble Energy, Inc. (NBL), which was down 0.07% and detracted less than 1 basis point from

the performance. Our thesis remains intact with both demand and supply moving in the right

direction. In China, for instance, oil demand was up by almost a million barrels per day year-over-

year for the month of August, and its domestic production was down 300,000 barrels.4 In Iran,

where many pundits are looking for supply growth, production has plateaued at 3.6mm barrels

per day, according to the International Energy Agency. Meanwhile, the National Iranian Oil

Company needs $100 billion of new investment to hit their oil production goal of 4.5 million

barrels per day by 2021.5 The news of continued military activity in Nigeria and Libya and social

unrest in Venezuela will likely lead to continued pressure on oil production in those countries.

4 Cornerstone Analytics – 09/08/16

5 http://www.tehrantimes.com/news/405793/Iran-needs-100b-for-upstream-oil-gas-projects-by-2021

3

U.S. supply peaked at 9.6mm barrels of crude oil per day in June 2015, and it’s fallen by

approximately 1.1mm barrels since then.

Just before the quarter came to an end, on September 28, OPEC agreed to a framework that

would cut its production by about 700,000 barrels per day. The actual limits for each

member should be finalized by November 30, when member countries meet again. We believe

the major proponent of the deal was Saudi Arabia, since it faces a deficit equal to 13.5% of its

GDP (to put it in perspective, the U.S. figure was 2.5% in FY 2015, Greece's stood at 7.2%. Of

course, that is the short-term explanation. Quite possibly the real reason is the long-term one:

Saudi Arabia’s miscalculation of how little money would be invested for future production in this

low-price environment actually sets up an even scarier scenario, one where oil prices spike to

unprecedented levels and trigger demand destruction – more hybrids, more electric vehicles,

more of everything that requires less oil.

At the end of the third quarter, our Fund owned six energy names: three exploration and

production companies and three service companies. As we have discussed in previous letters,

we tilted our service company exposure from offshore to onshore because we believe the U.S.

shale companies are more competitive than their offshore peers in the short-term. In the U.S.

land driller space, we decided to focus our attention on alternating current (AC) rigs, which are

more energy efficient and can operate at higher top-drive speeds with more torque than silicon-

controlled rectifiers (SCR) and mechanical rigs. These advantages allow operators to drill more

wells per rig/year, thus accelerating cash flows because wells come online sooner than with

legacy rigs. We believe that AC rigs should continue to take market share as upstream producers

demand higher rig specifications in order to meet increasingly complex horizontal drilling criteria

(i.e. longer laterals) and productivity requirements (i.e. pad drilling, automated pipe handling, and

increased mobility). Therefore, we believe that companies with the largest Tier 1 AC rig fleets and

best ability to fund upgrades will likely capture an outsized share of demand from large E&P

operators. Helmerich & Payne, Inc. (HP) and Patterson-UTI Energy Inc. (PTEN) are the two

onshore drilling companies that best demonstrate these characteristics. Unconventional decline

rates imply a higher rig count just to maintain existing production while further upside exists

should U.S. shale become the global swing producer.

8,300

8,500

8,700

8,900

9,100

9,300

9,500

9,700

01/02/15 06/02/15 11/02/15 04/02/16 09/02/16

U.S. Crude Oil Production

Source: U.S. Energy Information Administration – Weekly U.S. Field Production of Crude Oil

4

Utilization (left hand graph) and market share (pie charts) by type of rig:

Companies with large AC-weighted fleets increased market share from Q3 2015 to Q2 2016, with

HP making the biggest gain (~5%) and PTEN making the second-biggest gain (~2%) relative to

other large AC drillers. The charts below show historical rig count and market share through the

downturn for HP and PTEN6.

HP – U.S. Land Rigs vs. Market Share PTEN – U.S. Land Rigs vs. Market Share

Moreover, HP and PTEN have stronger balance sheets than peers, and therefore, more flexibility

to fund rig upgrades. HP has a net cash position of $524 million. PTEN’s net debt to LTM7

EBITDA is 1.8x vs. an average of 5.9x for its non-HP competitors (Nabors Industries Ltd.,

Precision Drilling Corporation, Unit Corporation, and BR, PDS, UNT, and Pioneer Energy

Services Crop.8).

Market commentary

In the 5,000- or so year-history of interest rates, now is the first time we have experienced

negative rates. Approximately 30% of global sovereign debt requires the lender to pay the

6 Source: Wells Fargo, Oil Service Statistics & Valuation Handbook – Sep-2-2016

7 LTM = last twelve months

8 H&P Presentation – Sep-7-2016; Financial Data as of Jun-30-2016

Source:IHS Rig Data, Company Reports, RBC Capital Markets Estimates

Source: IHS, RigData, RBC Capital Markets estimates

Source: Wells Fargo Securities, LLC.

5

borrower. This phenomenon is not limited to short-term debt. On July 13, Germany became the

second G7 nation (after Japan) to sell negative-yielding 10-year bonds. Switzerland, not to be

outdone, sold a 42-year bond with negative yields. We do not know whether rates will continue to

stay low, but what if they go up? Goldman Sachs calculated that a 100bps increase in yield would

cost over $1 trillion dollars of value destruction in the U.S. bond market alone.9 The goal of low

(or zero, or negative) interest rate policy is to jump-start a lackluster economy, but we do not see

any proof that these actions are actually working. What is a central bank to do when its ever-

increasing efforts fail to produce any fruit? Now Bank of Japan and Swiss National Bank, among

others, are buying large equity stakes. We are not convinced that these experiments will end well.

In the fourth quarter of 2007, we wrote extensively about our worries about the extreme

valuations in the stock market. Today, both gross and net leverage are higher than they were at

the end of September 2007. Most strikingly, the Fed Funds Target Rate was 5.25% and the

Federal Reserve balance sheet stood at $890 billion in 2007, compared to today’s 0.50% and

$4.5 trillion, respectively. The low interest rates, not surprisingly, resulted in elevated debt to

EBITDA level.

Yet, despite all these efforts, the robust GDP growth has been elusive. The New York Fed, in

their Nowcasting Report, lowered its third quarter and fourth quarter 2016 forecasts by 50bps,10

so brace yourselves for a slower second half. We worry that the growth in money printing and

credit availability, combined with a lack of growth in GDP and high asset valuations, is like a

powder keg with a fuse of unknown length.

The last time the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average indices set a

record on the same day was December 31, 1999. Those records fell on August 11, 2016 - a feat

that was repeated again on August 15. These recent record closes came on the heels of weak

corporate earnings. The second quarter of 2016 marked the fifth consecutive quarter of earnings

9 http://www.bloomberg.com/news/articles/2016-06-03/goldman-flags-1-trillion-reason-for-fed-to-go-slow-on-rates

10 https://www.newyorkfed.org/medialibrary/media/research/policy/nowcast/nowcast_2016_0923.pdf?la=en

6

declines for the S&P 500 and the third quarter would be the sixth despite previous projections of

growth. This is the longest stretch since 2008.

On August 26, 2016, Fed Chair Janet Yellen suggested that “the rate hike case has strengthened

in recent months.” But exactly a week later, on September 2, 2016, the Fed received some

contradicting news. The Jobs Report depicted only a 151,000 increase in payrolls for the month

of August. That is a low number for an economy of this size, and it was accompanied by hourly

wage growth of a measly 0.1% and average weekly earnings that fell from $884.08 to $882.54.11

In closing

If our assessment of the situation is correct, the market – as a whole – is expensive. Some try to

justify it with P/E ratios, as if the 29.8x P/E multiple for the Russell 2500 is low. For starters, that

multiple only includes the companies that have positive earnings. How about the 30% of the

Russell 2500 companies that have negative earnings? Perhaps the best way to look at it is to

assess where we are historically. The chart below shows that, as of the end of the third quarter,

the Russell 2500 was only 2.6% off its recent all-time high. Guess when the enterprise value-to

EBITDA -multiple (EV/EBITDA) hit its peak? On Sept. 30, 2016, the Russell 2500’s EV/EBITDA

stood at 19.5x – significantly higher than its 11.9x average over the last decade-plus. It is also

interesting to note that EV/EBITDA hit its low of 6.9x in November 2008. Since the market

bottomed on March 8, 2009, the Russell 2500 has increased by 277%, the cumulative EBITDA

increased by 57%, and the EBITDA multiple increased by 142%.

If and when market participants come to the same conclusion (like they did during the dot-com

bubble and the great financial crisis), many would try to go through a narrow door all at the same

time. During such a time, we would expect a high level panic, which will create forced selling. An

elevated level of forced selling, combined with a lack of liquidity, might result in challenges for

many fully invested products such as index funds, many ETFs, and funds that have no to very low

levels of cash cushions. Many investors put very little value on cash, arguing that cash’s current

low yield makes it a poor investment. However, we believe cash’s value comes not from its

current yield, but from its optionality. In a down market, cash helps mitigate losses and affords

11

http://www.zerohedge.com/news/2016-09-02/most-troubling-news-fed-todays-jobs-report

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

0

100

200

300

400

500

600

Last Price

EnterpriseValue/EBITDA

Russell 2500 Index

Source: Bloomberg

7

one the opportunity to buy when others are being forced to sell (generally the best time to

buy). As we near the 8th year of the current bull market, it can be tempting to forget that nasty

downturns happen with some regularity, and there is never a bell rung to announce their arrival.

We continue to be on high alert. Our portfolio is filled with companies trading at substantial

discount to market multiples (and, more importantly, at discounts to our intrinsic value

estimates). Our cash level remains elevated. We urge extreme caution.

Respectfully submitted, Arik Ahitov Dennis Bryan Portfolio Manager Portfolio Manager

October 4, 2016

8

TICKER

SHARES /

PRINCIPAL SECURITY MKT PRICE ($) MKT VALUE ($)

% OF NET

ASSET VALUE

AAN 1,182,959 AARON S INC 25.42 30,070,817.78$ 3.77%

AGCO 365,591 AGCO CORP 49.32 18,030,948.12$ 2.26%

APOL 1,598,004 APOLLO EDUCATION GROUP INC 7.95 12,704,131.80$ 1.59%

ARRS 1,544,814 ARRIS INTERNATIONAL PLC 28.33 43,764,580.62$ 5.49%

ARW 305,293 ARROW ELECTRONICS INC 63.97 19,529,593.21$ 2.45%

AVT 767,480 AVNET INC 41.06 31,512,728.80$ 3.96%

BW 1,600,410 BABCOCK + WILCOX ENTERPR 16.50 26,406,765.00$ 3.31%

XEC 202,110 CIMAREX ENERGY CO 134.37 27,157,520.70$ 3.41%

CUB 286,300 CUBIC CORP 46.81 13,401,703.00$ 1.68%

DAN 1,903,884 DANA INC 15.59 29,681,551.56$ 3.73%

DV 1,180,369 DEVRY EDUCATION GROUP INC 23.06 27,219,309.14$ 3.42%

FL 76,520 FOOT LOCKER INC 67.72 5,181,934.40$ 0.65%

HP 395,818 HELMERICH + PAYNE 67.30 26,638,551.40$ 3.34%

HMHC 1,303,657 HOUGHTON MIFFLIN HARCOURT CO 13.41 17,482,040.37$ 2.20%

IDCC 353,448 INTERDIGITAL INC 79.20 27,993,081.60$ 3.51%

NBL 919,610 NOBLE ENERGY INC 35.74 32,866,861.40$ 4.13%

OSK 172,520 OSHKOSH CORP 56.00 9,661,120.00$ 1.21%

OTHER 9,163,115.00$ 1.15%

PTEN 1,544,820 PATTERSON UTI ENERGY INC 22.37 34,557,623.40$ 4.34%

RDC 1,436,050 ROWAN COMPANIES PLC A 15.16 21,770,518.00$ 2.73%

SM 363,133 SM ENERGY CO 38.58 14,009,671.14$ 1.76%

VECO 979,330 VEECO INSTRUMENTS INC 19.63 19,224,247.90$ 2.41%

WDC 926,960 WESTERN DIGITAL CORP 58.47 54,199,351.20$ 6.80%

TOTAL EQUITIES: 552,227,765.54$ 69.30%

15,317,000 ATWOOD OCEANICS INC 78.25 11,985,552.50$ 1.51%

TOTAL CORPORATE BONDS & NOTES: 11,985,552.50$ 1.51%

(500) SM ENERGY CO 3.40 (20,493.97)$ 0.00%

TOTAL CALL OPTIONS: (20,493.97)$ 0.00%

33,000,000 TREASURY BILL 99.97 32,991,502.50$ 4.14%

37,000,000 TREASURY BILL 99.98 36,991,416.00$ 4.64%

40,000,000 TREASURY BILL 99.95 39,980,656.00$ 5.02%

50,000,000 TREASURY BILL 99.93 49,966,770.00$ 6.27%

TOTAL US GOVT AND AGENCIES: 159,930,344.50$ 20.07%

FPA Capital Fund, Inc.

Portfolio Holdings 09/30/16

9

TICKER

SHARES /

PRINCIPAL SECURITY MKT PRICE ($) MKT VALUE ($)

% OF NET

ASSET VALUE

FPA Capital Fund, Inc.

Portfolio Holdings 09/30/16

CASH & EQUIVALENTS (NET OF LIABILITIES): 72,641,126.35$ 9.12%

TOTAL CASH & EQUIVALENTS (NET OF LIABILITIES): 232,571,470.85$ 29.19%

TOTAL NET ASSETS: 796,764,294.92$ 100.00%

NO. OF EQUITY POSITIONS 22

Portfolio Holding Submission Disclosure

You should consider the Fund’s investment objectives, risks, and charges and expenses carefully before you invest. The Prospectus

details the Fund's objective and policies, sales charges, and other matters of interest to the prospective investor. Please read this

Prospectus carefully before investing. The Prospectus may be obtained by visiting the website at www.fpafunds.com, by email at

crm@fpafunds.com, toll-free by calling 1-800-982-4372 or by contacting the Fund in writing.

Investments in mutual funds carry risks and investors may lose principal value. Stock markets are volatile and can decline significantly in response to adverse issuer,

political, regulatory, market, or economic developments. The Fund may purchase foreign securities including American Depository Receipts (ADRs) and other depository

receipts, which are subject to interest rate, currency exchange rate, economic and political risks; this may be enhanced when investing in emerging markets. Small and

mid- cap stocks involve greater risks and they can fluctuate in price more than larger company stocks. Groups of stocks, such as value and growth, go in and out of favor

which may cause certain funds to underperform other equity funds.

Portfolio composition will change due to ongoing management of the fund. References to individual securities are for informational purposes only and should not be

construed as recommendations by the Fund, portfolio managers or Distributor.

The FPA Funds are distributed by UMB Distribution Services, LLC, 235 W. Galena Street, Milwaukee, WI, 53212.

10

Important Disclosures

The views expressed herein and any forward-looking statements are as of the date of the publication and are those

of the portfolio management team. Future events or results may vary significantly from those expressed and are

subject to change at any time in response to changing circumstances and industry developments. This information

and data has been prepared from sources believed reliable, but the accuracy and completeness of the information

cannot be guaranteed and is not a complete summary or statement of all available data.

Portfolio composition will change due to ongoing management of the Fund. References to individual securities are for

informational purposes only and should not be construed as recommendations by the Fund, the portfolio managers,

or the Distributor. It should not be assumed that future investments will be profitable or will equal the performance of

the security examples discussed. The portfolio holdings as of the most recent quarter-end may be obtained at

www.fpafunds.com.

Investments in mutual funds carry risks and investors may lose principal value. Stock markets are volatile and can

decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. The

Fund may purchase foreign securities, including American Depository Receipts (ADRs) and other depository

receipts, which are subject to interest rate, currency exchange rate, economic and political risks; this may be

enhanced when investing in emerging markets. Small and mid-cap stocks involve greater risks and they can

fluctuate in price more than larger company stocks.

Value stocks, including those selected by the Fund’s portfolio managers, are subject to the risk that their intrinsic

value may never be realized by the market and that their prices may go down. Securities selected by the portfolio

managers using a value strategy may never reach their intrinsic value because the market fails to recognize what

the portfolio managers consider to be the true business value or because the portfolio managers have misjudged

those values. In addition, value style investing may fall out of favor and underperform growth or other styles of

investing during given periods.

Definitions

The Russell 2500 Index consists of the 2,500 smallest companies in the Russell 3000 total capitalization universe

offers investors access to the small to mid-cap segment of the U.S. equity universe, commonly referred to as "smid"

cap. The Russell 2500 Value Index measures the performance of those Russell 2500 companies with lower price-

to-book-ratios and lower forecasted growth values.

The S&P 500 Index includes a representative sample of 500 hundred companies in leading industries of the U.S.

economy. The Index focuses on the large-cap segment of the market, with over 80% coverage of U.S. equities, but

is also considered a proxy for the total market.

Indices are unmanaged, do not reflect any commissions or fees which would be incurred by an investor purchasing

the underlying securities. Investors cannot invest directly in an index.

EBITA (Earnings before interest, taxes and amortization) is a financial indicator used widely as a measure of

efficiency and profitability. EV - Enterprise Value, or a measure of a company's value, often used as an alternative to straightforward market

capitalization. Enterprise value is calculated as market cap plus debt, minority interest and preferred shares minus total cash and cash equivalents. ETF is Exchange Traded Fund. It is a fund that tracks an index, but can be traded like a stock.

Price/Earnings ratio (P/E) is the price of a stock divided by its earnings per share.

The FPA Funds are distributed by UMB Distribution Services, LLC, 235 W. Galena Street, Milwaukee, WI, 53212.

11